Each year, wealthy countries collectively spend around 178 billion dollars (!!) on Development aid.
Development aid has funded some of the most cost-effective lifesaving programs that have ever been run. Such examples include PEPFAR, the US emergency aids relief programme rolled out at the height of the African aids pandemic, which estimates suggest saved 25 million lives at a cost of some 85 billion ($3400 per life saved, competitive with Givewell’s very best). EAs working with global poverty will know just how difficult it is to achieve high cost effectiveness at these scales.
Development aid has also funded some of the very worst development projects conceived, in some instances causing outright harm to the recipients.
Development aid is spent with a large variety of goals in mind. Climate mitigation projects, gender equality campaigns, and free-trade agreements are all funded by wealthy governments under a single illusory budgetary item: ‘development assistance’.
In short, the scope of aid is enormous and so is the impact that can be had by positively influencing how it is spent. I'm not the only one who thinks so! In January of 2022 Open Philanthropy announced Global Aid Policy as a priority area within its global health and wellbeing portfolio.
In this post I will:
- Demystify the processes that decide how aid is allocated.
- Argue that aid policy is neglected (by EAs especially), high in scale, and maybe tractable.
- Sneakily attempt to make you excited about aid, in preparation for the announcement of a non-profit I’m co-founding.
Who decides how aid is allocated?
When I first dug into development aid, I found the field very opaque and difficult to get an overview of. This made everything seem much more static and difficult to influence, than I now think it is.
Come with me, and I’ll show you how the aid-sausage is made. The explanation tries to capture the grand picture, but each country is different and the explanation is overfit to western democracies.
The aid pipeline:
It all begins with a government decision to spend money on aid. For many countries this decision was formalized in 1970 after a UN resolution was signed between members to spend 0.7% of GNI on official development assistance.
Politicians decide on a national aid strategy
Each country that gives aid will have an official strategy for its aid spending. The strategy lists a number of priorities the government wants to focus on. It is typically re-negotiated and updated once every few years or when a new government takes seat. The agreed upon aid strategy sets a broad direction for the civil service and relevant parliamentary committees in projects they choose to carry out.
The recently released UK aid strategy is a good example of what typical priorities look like:
- deliver honest, reliable investment through British Investment Partnerships, building on the UK’s financial expertise and the strengths of the City of London, in line with the Prime Minister’s vision for the Clean Green Initiative
- provide women and girls with the freedom they need to succeed, unlocking their future potential, educating girls, supporting their empowerment and protecting them against violence
- step up the UK’s life-saving humanitarian work to prevent the worst forms of human suffering around the world. The UK will lead globally for a more effective international response to humanitarian crises
- take forward UK leadership on climate change, nature and global health. The strategy will put the UK commitments made during the UK’s Presidency of G7 and COP26, UK global leadership in science and technology, and the UK’s COVID-19 response, at the core of its international development work
The Government passes a national budget
Most elected governments pass a national budget each year, determining how much money should be spent on each category of expense from healthcare to military. One of these categories will typically be ‘official development assistance’.
This category will often be broken into subcategories, which earmark various percentages towards various causes, countries, and organizations. A common budgetary target for many countries is to spend 0.7% of GNI on aid, with some countries giving slightly more and others giving slightly less.
The importance of the national budget varies significantly based on the extent to which it earmarks the aid spending. The 2023 Danish national budget, for example, sets aside 25% of its aid to climate related interventions and 3.6% towards helping Ukraine. Once the yearly budget is approved, it is difficult to change.
Typically the civil service will make a recommendation for how the budget should be allocated, in line with past commitments, ongoing projects and the government’s aid priorities. The government uses this proposal as a starting point, making amendments in line with their political objectives.
The country’s aid agency decides on projects
After the national budget is passed, the parliament passes on the torch to a government aid agency responsible for carrying out the strategy with the available resources.
Multilateral projects
Countries give anywhere from 0 to 70% of their total development budgets to multilateral organizations such as the UN and WHO, who carry out development projects that align with the governments’ strategies.
Depending on the number of strings attached, the multilateral organization largely decides how the money is spent from there.
Bilateral projects
Donor countries also carry out a number of projects that directly attempt to achieve some objective in a recipient country. These projects are referred to as ‘bilateral’ because they only involve the donor and recipient country, and are overseen by the national aid agency itself.
The structure of these projects varies significantly, but often they are carried out in collaboration with either the recipient government or an NGO that is responsible for the day-to-day operations. In order to achieve the objectives set out in the donor country's aid strategy, its national agency will regularly consult the budget and decide on new bilateral projects.
Most governments have a number of developing countries whose governments they have established especially good relations with. Aid and other investments are a way to uphold those relations, but high trust also makes it easier to carry out impactful projects. Countries tend to carry out especially many bilateral projects in countries they work well with, or want to build better relations to.
Projects are implemented
Now that the government has decided on projects to fund, we finally arrive at the stage of actual implementation. This is the step that EA historically has been the most engaged with. Here we can measure the impact of projects, rank them against each other, and say which are more impactful.
What’s important to keep in mind are all of the political decisions that went into deciding on an exact project. If effective altruists identify a different project that would save more lives, but does worse on all the other criteria the government used to decide, we shouldn’t expect the government to change its decision.
Ensuring that each step in the decision-making process becomes better aligned with indiscriminately saving and improving lives is of increasing importance, especially as evidence establishes which interventions do so most effectively.
Scale, Tractability, Neglectednes
Scale
“The scale speaks for itself” - Hans Niemann
178 Billion dollars is a ridiculously high number. There is a broad consensus among experts, think tanks, and implementing partners alike that the cost-effectiveness of aid can be vastly improved.
I expect a lot of people to be reasonably worried that this is a textbook case of getting mugged by scale. “If we capture just 1% of the market, we’ll be rich” is a common sentence to hear from startups doomed to fail. Let’s assume that for some reason you are skeptical of somebody’s chance of influencing the entire world’s aid spending, and focus on just the aid spending of a single small country.
Denmark, with a population of just under six million, alone spends ~$2.7 billion on development aid each year, which is more than enough money to yield a massive impact if spent more cost-effectively.
Tractability
Is influencing the spending of a small country tractable? Hopefully the overview of how aid allocation is decided, should have given you a sense of the many avenues there are to influence aid priorities for the better.
If you’re still not convinced that it’s tractable, let’s look at some case-studies cherry-picked by me to prove that it’s at the very least possible.
The directors of the Norwegian aid agency were recently featured in an article stating their intent to add cash-transfers to Norway’s aid portfolio. This decision was no doubt influenced by the excellent research on cash-transfers done by organizations such as the Center for Global Development, Berkeley’s Center for Effective Global Action, and others.
A grassroots campaign organized by EAs in Switzerland, increased the spending of Zurich on aid from €3m to €8m. That said, another grassroots campaign organized in part by EAs to campaign against UK’s cuts to aid spending, did not succeed. That still yields a 50% success-rate and the UK campaign was argued to have been cost-effective as well despite failing to prevent the cuts.
In 2019 the US aid agency ran a cash-benchmarking experiment in collaboration with GiveDirectly. While one experiment is not going to change much, it shows the world’s largest giver of aid is open to ideas that can increase impact.
The base rate for the success of advocacy is surprisingly high, and important decision-makers are (sometimes) listening to the evidence. Moreover, if government’s weren’t influenced by advocacy, why on earth is every parliament surrounded by lobbyists arguing for why exactly their industry should be free of competition?
Neglectednes
Is affecting aid policy neglected? Most definitely. While there are a few dozen organizations focused on research and advocacy for more cost-effective aid spending, it is a tiny amount in light of the total scope of aid. Similar to how a few dozen AI safety orgs is not nearly enough in light of how fast AI is progressing.
And similar to how many AI safety projects couldn’t exist without EA funding, so are there many aid policy projects that haven’t been possible to do due to a historic lack of funding. The list of projects within aid policy that I think are likely to be cost-effective and fundable is much larger than the number of EAs willing to facilitate them.
A call to action
Development aid is a big deal. It represents one fourth of all giving worldwide and is responsible for saving and improving millions of lives each year. As effective altruists are becoming increasingly ambitious in the scope of interventions we consider, development aid should be making its way onto our radar.
If you’re currently thinking: “someone should fund an org that works with aid policy or something”, then I have good news! That is exactly what my co-founder Jacob and I are doing, and we’re looking forward to announcing the organization along with our pilot project soon.
In the meantime, if you are somebody interested in global development and policy, there has never been a better time to turn that interest into an impactful career. If you’re unsure where to begin, don’t hesitate to send a message, we would love to meet you!
Happy to see that there's a new org getting started in this area. If you can say, who are your initial funders?
One thing I'd like to see you grapple a bit more with is the politicization of official aid. This may seriously constrain an org's ability to influence (1) top-down aid priorities and (2) in-country programme outcomes. This is based on my experience on the ground rather than a rigorous review, so may be wrong or biased in important ways. But it is my impression that official aid programmes are usually designed and implemented with much closer cooperation with and direction from the host government. I think this means that official aid orgs face more impact-political palatibility trade-offs than do NGOs, for example (though NGOs are constrained in other ways).
Another trend I think you should be aware of is the apparent pillaging of aid budgets to fund climate finance commitments. Rich countries have promised to finance projects in lower-income countries to mitigate and adapt to climate change, and pledged that they'll do so by providing additional funding on top of their aid budgets. In reality, though, they're falling well short of those taregets AND many are raising much of the climate finance money by reallocating their aid budgets!
I'd love to see more scrutiny on this decision--for example, some of the folks at CGD are doing God's work by working through tedious aid budget details. It's not at all clear that climate finance projects save more lives than traditional aid projects that are more optimized for health outcomes, so I think this trend is probably very bad compared to a counterfactual of just funding the regular aid budget (and almost certainly very bad against a counterfactual of aid funding + additional climate finance).
At least in the UK context, I think the "pillaging" of aid budgets to fund climate commitments isn't my top concern.
UK aid monies are currently used by the Home Office on rehousing refugees. It looks like we're going to spend more UK aid in the UK than overseas.
Apart from the obvious concern that each pound can do more good in the world's poorest countries, it's actually engendering exactly the kind of waste that aid critics detest. The Home Office has no incentive to use the money cost effectively, because it comes from the FCDO's budget, not theirs.
Thanks Sanjay. I agree in the UK context. I think this is a great example of how every country is very different. Yes England have absolutely routed their overseas aid and might be another good example of a country not to focus on with this kind of advocacy. Which is sad because until recently UKAID had some pretty good programs.
Thank you for your thoughtful comment Stephen!
We are incubated through Charity Entrepreneurship, and have gotten our seed funding through their network.
When deciding on our pilot project, we did briefly look into the cost-effectiveness of climate mitigation projects funded by development aid and it was difficult to conclude much with high confidence. While it won't be our initial focus, we would be very excited to see increased measurement and the creation of better metrics for aid projects related to climate change and mitigation.
Traditional aid has benefited tremendously from the increased focus on measurement and evaluation in recent decades. I think it's especially important we don't forget the lessons learned as we start to carry out aid projects in new domains.